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Retail Financial Services

Retail Financial Services o o o o o o o o o o o o o o Credit Cards Debit Cards Smart Cards Automated Teller Machines Electronic Fund Transfer Electronic Clearing Portfolio Management Services Broking Services Consumer Credit Hire Purchase Finance Housing Finance Personal Tax Counseling Internet Banking Virtual Banking

Retail Financial Services

The retail financial services (RFS) sector covers all banking, insurance and wealth management services to individuals and small businesses. It helps to meet the financial needs of consumers and small businesses. The retail financial services market is having a potential $30 billion and it is regarded as the key driver to the Indian economy.

Retail Financial services are.

o Credit cards o Debit cards o Smart cards o Automated Teller Machines o Electronic Fund Transfer o Electronic Clearing o Portfolio Management Services o Broking Services o Consumer Credit o Hire Purchase Finance o Housing Finance o Personal Tax Counseling o Internet Banking o Virtual Banking


Credit Cards

What is Credit card?

A credit card is a card or mechanism which enables cardholders to purchase goods, travel and dine in a hotel without making immediate payments.

It is a part of a system of payments named after the small plastic card issued to users(Cardholders) of the system. The issuer of the card grants a line of credit to the user from which he/she can borrow money for payment to a merchant(Member establishment) or as a cash advance to the user.

Parties to a Credit Card

Issuer: Bank or other card issuing organisations Cardholders: Individuals, corporate bodies, etc

Member Affiliate: Visa, Master Card, etc

Member Establishments: Shops and service organisations enlisted by issuer who accept credit cards

Procedure of credit card operation

The card holder gives the card to the merchant after the purchase of something. She/he after proper verification swipe it with the card payment terminal. After electronic verification n account adjustments, a charge slip in triplicate is being generated, one copy to customer, one to merchant, one to bank. The one copy of charge slip will be signed by the user for further verification n kept with merchant. Happy User. Happy Seller Happy Banker..!

How it works?

Types of Credit Cards

1. Credit Card
Normal card, can purchase without cash n can withdraw money. Revolving credit principle A limit in the amount that can be spend, up to 45 days of credit, interest on outstanding ( 30 -36 % /annum)

2. Charge Card
Convenient means of payment for goods purchased. Makes purchase, consolidated bill for a specific period. Bills are payable in full on presentation. No interest charges, no limits on spending Andhra bank, BOB, Can, Diners club card etc

3. In-Store Card
Issued by retailers or companies, but purchase restricted to issuers outlets or products only. Payment on monthly or extended credit basis, but interest is charged for extended period. Usually issued by hotels, resorts, petroleum Cos, etc

4. Corporate Credit Cards

Issued to public, private limited Cos and public sector units. Add-on cards can be issued to persons authorized by company. Name of the Co 'will be endorsed on add-on cards. Transactions on add-on cards are also billed to main card and debits are made to companys account.

5. Business Cards
Similar to corporate card. Meant for the use of proprietary concerns, firms, etc. Limit is fixed based on status of firms.

6. Virtual card
Main purpose is to provide security. Can be generated by anybody at any time if he has already registered his name in Banks website. Lapses after use and cant be revised. Completely prevents misuse and offered to existing card holders free of cost.

Benefits of Credit card

To card holders:
Simple to operate and easy to carry. No risk of carrying cash or cheque book . Purchase now- Payment later. Can also be used as ATM card. Overdraft facility is also available on past credit rating. Purchasing power increases and have extra money free of interest. Provides certain level of prestige.

Benefits of Credit card

To issuers:
Offers high profit- Commission of 2.5% on sales, 1.5% on outstanding, and sometimes may accumulates to 60% per annum. May help to get new customers Helps to reduce cost

Benefits of Credit card

To Member Establishments:
Has guarantee of payment and no bad debts. Speedy settlement of bills by banks and a good cash flow can be maintained. Reduces cash security risk. Can offer credit facility without setting up own credit arrangements. Helps to increase volume of business.

Demerits of Credit card

To Card Holders:
May have the burden of service charge, annual fee, membership fee, etc. A minimum of 5-10% have to paid for the late payment. Heavy interest rate for defaulters n some hidden charges may occur. May tempt the holders to spend more than their income and repaying capacity.

Demerits of Credit card

To issuers:
Cost involved is high- Cost of card, cost of staff to process applications, cost of placing and marketing, etc The menace of frauds perpetuated by holders of fake cards. Disputes with member establishments. Underutilisation.

Demerits of Credit card

To Member Establishment:
The commission to be paid to the issuing banks/ credit card organisation is heavy. Some banks may delay in payments.

Debit Cards

What is Debit card?

It is a plastic card which provides an alternative payment method to cash when making purchases. The holder needs to have a bank account to get debit card.

Used widely for telephone and Internet purchases.

It also allow for instant withdrawal of cash, acting as the ATM card for withdrawing cash

Procedure of operation
After purchase the card holder can present the card to the merchant. Hell swipe card at terminal known as Point of Sale Terminal and the holder may be asked to enter the 4 digit PIN. After further electronic processing, a sales slip will be generated in 3 copies as in credit card. The purchase amount will be automatically deducted from the bank account.

Benefits of Debit card

No need to carry cash. Obtaining a debit card is easier than credit card. More security than Credit card. Avoids overdraft, permits to purchase only up to amount available in account. No service charge, fee, fine etc No worry of credit, monthly bills, payments etc.

Demerits of Debit card

Record keeping is mandatory Convenience is not always guaranteed Hidden fees Internet scams Fear of loosing Some ATM machines charge a fee for use. No way to withhold payment.

Difference between Credit Card and Debit Card

Credit Card
1. Pay later Product 2. Credit for 30 to 40 days

Debit Card

1. Pay now Product 2. No Credit, Amount debited immediately. 3. Needs sophisticated 3. No need of sophisticated communication network telecommunication system 4. No need of bank account 4. Needs bank account and sufficient balance in it. and balance in it. 5. Possibility of risk of fraud is 5. Risk is minimized through PIN. high.

Smart Cards

Smart cards
A smart card, chip card, or integrated circuit card (ICC), is any pocket-sized card with embedded integrated circuits which can process data. Two broad categories of ICCs. Memory cards: Contain only non-volatile memory storage components, and perhaps some specific security logic. Microprocessor: Contain volatile memory and microprocessor components.

Smart cards
It can receive input and can deliver output. The card is made of plastic, generally PVC.

It has a hologram to avoid counterfeit ( imitation) Eg: SIM cards in mobile E.g HDFC

Applications of Smart cards

Computer security Smart cards are used to securely hold encryption keys, and also to add another layer of encryption to critical parts of the secured disk. Financial Applications ATM cards, fuel cards, SIMs for mobile phones, authorization cards for pay television, high-security identification and access-control cards, and public transport and public phone payment cards Identification Smart cards are used for authentication of identity. Entry cards, Licenses, etc

Benefits of Smart cards

It can be readily reconfigured Reusable Transactions can be done off and on-line Gives more security, thus reducing the risk of transaction fraud High memory capabilities They are much more durable and reliable They allow multiple applications to be stored in one card. It is more convenient, since people don't have to carry cash or multiple cards.

Demerits of Smart cards

Fees applied with the use of a card It gives liability issues if stolen or lost Lack of technology to support users It is potential for too much data on one card if lost or stolen

Automated Teller Machine

Automated Teller Machine(ATM) is an electronic machine which is operated by the customer himself to make deposits withdrawals and other financial transactions

Merits Round the clock quick service to the customers There is ease and privacy of operations Self operating and no need for bank staff Free from human errors Cost of maintenance of ATM is lesser Reduces rush in bank

Demerits Initial set up cost is high This system demands a higher degree of sophistication and literacy on the part of users Cash dispensation is limited to a few denominations.

Invented by Scot John Shepherd-Barron. The world's first ATM was installed in a branch of Barclays in the northern London De La Rue developed the first electronic ATM First person to use-Reg Wamey The first ATMs accepted only a single-use token or voucher The idea of a PIN stored on the card was developed by the British engineer John Rose in 1965 Wide UK use in 1973 IBM 2984 CIT (Cash Issuing Terminal) was the first true Cashpoint, similar in function to today's

Bank premises Public places Two types o On premises-complement to an actual bank branchs capability. o Off premise-for straight need of cash.

Alternative uses
Deposit currency recognition, acceptance, and recycling Paying routine bills, fees, and taxes (utilities, phone bills, social security, legal fees, taxes, etc.) Printing bank statements Updating passbooks Loading monetary value into stored value cards Purchasing Games and promotional feature Donating to charities Cheque Processing Module In Australia, Belgium, Cook Islands, Finland, Germany, Ireland, India, Italy, New Zealand, Portugal, South Africa, Spain and the United Kingdom, prepaid cell phones can be recharged through some ATMs ATMs can also act as an advertising channel for companies to advertise their own products or third-party products and services.

Electronic funds transfer

Electronic funds transfer or EFT refers to the computer-based systems used to perform financial transactions electronically.

Customer can deposit, withdraw and deal with any branch. Transfer with the help of plastic cards cardholder-initiated transactions, where a cardholder makes use of a payment card electronic payments by businesses, including salary payments electronic check (or cheque) clearing

Card-based EFT
EFT may be initiated by a cardholder when a payment card such as a credit card or debit card is used Transaction types Sale Withdrawal Deposit Cash back Inter account transfer Payment Inquiry

Electronic Banking
Many banks are replacing traditional checks and deposit slips with electronic fund transfer (EFT) systems, which utilize sophisticated computer technology to facilitate banking and payment needs. Routine banking by means of EFT is considered safer, easier, and more convenient for customers.

Electronic Clearing Service

Electronic Clearing Service is a mode of electronic funds transfer from one bank account to another bank account using the services of a Clearing House set up by Reserve Bank of India

The advantages to the banks

Banks handling ECS get freed of paper handling. Paper handling also creates lot of pressure on banks as they have to encode the instruments, present them in clearing, monitor their return and follow up with the concerned bank and customers. In ECS banks simply get the payment particulars relating to their customers. All they need to do is to match the account particulars like name, a/c number and credit the proceeds Wherever the details do not match, they have to return it back, as per the procedure

Scheme benefit the ECS users -like corporate bodies/ institutions

The ECS user saves on administrative machinery for collecting the cheques, monitoring their realization and reconciliation Better cash management. Avoids chances of frauds due to fraudulent access to the paper instruments and encashment. Realize the payments on a single date instead of fractured receipt of payments. Ability to make payment and ensure that the beneficiaries' account gets credited on a designated date.

Participants in the ECS debit scheme

Telephone companies Electricity supplying companies Electricity boards Credit card collections Collection of loan installments by banks and financial institutions



Portfolio management is essentially a systematic method of managing one's investment efficiently. Rather than investing the entire savings in a single security, they invest in a group of securities. Such a group of securities is called a portfolio.


Portfolio management services refers to those services provided to the investors where in the agency takes the responsibility of using the funds effectively for maximum results. The agency converts the fund into compatible portfolios on the basis of the objectives and the constraints of the investor. It continuously evaluates and makes necessary adjustments for better results.

Portfolio management begins with the discussion of the investors objectives, constraints and preferences and their relationship with the available investment opportunities. This leads to a well defined portfolio policy and strategy statements on the allocation of funds among various types of assets ,timing of investments and disinvestments.

The PMS being offered by the industry can be classified into three types. The services differ on the basis of the discretion lying with the firm in managing the portfolio. 1.Non-discretionary PMS 2.Delegated Investment management. 3. Optional .

Non-discretionary PMS:

This service is targeted towards investors who would like to make their own decisions regarding the use of their funds-these are generally large portfolio owners. The role of the firm is in the execution of the order of the investor.

Delegated Investment management:

This discretionary service is for clients who would leave the management of their portfolios to the firm. This service is more attractive to the provider as this gives the firm a freedom to use its knowledge and judgment. The client is interested in better return/ performance of the portfolio.

In this kind of service the provider offers a non discretionary PMS in the beginning and it gains expertise and develops in infrastructure, it can offer any of the two types stated above to the clients depending on their choice. The firms also provides several additional services e.g tax counseling sessions, borrowing against securities, temporary overdraft facility, across the counter facility and quarterly meetings of investors.

Return on Investment: Although the RBI guidelines do not permit the provision of any guaranteed return on security of the principal, the firms offer a return of 1435% to the clients. The return from the clients portfolio depends on the tenure of association and the market index. Fee Charged: A variety of arrangements exist between the portfolio manages and their clients with regard o the fee charged. Some assure a minimum certain rate of return and no fee is charged unless this return is generated for the clients.

Lock-in period: This period varies from three months to two years. Some firms also provide the service without such restrictions .
Investments: Portfolio managers favor the investment of the funds in a mix of money and capital market instruments. The choice of the instruments depends on the tax liability and the risk profile of the clients. Interface with Clients: The intensity of the interface is determined by the type of PMS acquired by the client. In the case of a non-discretionary PMS, the interaction is limited to the provision of regular information about the status of the clients portfolio

Interface with Brokers and Stock Exchange: Portfolio managers take the services of brokers for a better investment of funds. Many firms have in house brokers. Others take help from a panel of approved brokers.

Maintenance of Accounts: Under the RBI guidelines on Portfolio Management, the firms have to maintain separate accounts for each client. This is followed due to the implications of the provisions of the Income Tax Act and the Companies Act. Public sector mutual funds have been exempted from income tax and the proceedings out of the funds can be distributed among the investors.

PMS- offered by entities with SEBI registration

INDIA- offered by Asset Management companies & brokerage houses

Reliance Portfolio Management

Enam Asset Management, PruICICI Asset Management J M Morgan Stanley Retail



Stock broker

A stock broker is a regulated professional who buys and sells shares and other securities through market makers on behalf of investors.
There are two types of Stock Brokers:

Full Service Stock Brokers Discount Stock Brokers

Full Service Stock Brokers Full service brokers will give you advice and investment recommendations These firms usually have full-time research departments and investment analysts who provide information the firm's brokers share with clients have very high commission fees and are usually only suitable for investors who have a great deal of money to invest and who do few trades

Discount Stock Brokers Discount brokers can answer any investment questions you may have, but they offer fewer personalized services for their clients Making stock recommendations or giving you portfolio advice. These are the brokers that advices trade with very low trade commission fees When you buy or sell stock, you will be paying this lower commission rate, which results in the investor, making more money.

There are three types of stock broking service. Execution-only, which means that the broker will only carry out the client's instructions to buy or sell. Advisory dealing, where the broker advises the client on which shares to buy and sell, but leaves the final decision to the investor. Discretionary dealing, where the stockbroker ascertains the client's investment objectives and then makes all dealing decisions on the client's behalf.

Brokerage terms
Front office : This is a description of the part of a brokerage firm that is "client facing". The sales staff, brokers and traders are part of the front office. Functions of the front office include acquisition and entry of orders, fulfillment of the orders, and all the regulatory reporting for the orders.

Back office: The back office is where the clearance processing of the trade is done. Transfer of securities and money and the tracking of "failure to deliver" is handled. Securities lending for a brokerage firm, wherein shares of a security that is being sold short are located to ensure they can be delivered, is usually included in the back office as well.

Bulls: A bull is a term used in the stock exchange market to refer to a stock market optimist who believes that share prices are likely to go higher, and who acts according to his investment operations.


Consumer credit includes all assetbased financing plans offered to primarily individuals to acquire durable consumer goods. In a consumer credit transaction, the individualconsumer-buyer pays a fraction of the cash purchase at the time of the delivery of the asset and pays the balance with interest over a specified period of time. The main suppliers of consumer credit are foreign/multinational banks, commercial banks and finance companies. There is no specific legislation to regulate consumer credit in India.

The salient features of consumer credit are:

1.Parties to the transaction 2.Structure of the transaction 3.Mode of payment 4.Repayment period and rate of interest 5.Security

Parties to the transaction

The parties to a consumer credit transaction

depends upon the nature of the transaction. In a bipartite arrangement, there are two parties, namely, borrower-cum-customer and dealer-cum-financier. In a tripartite arrangement, the parties are dealer , financier and the customer. The dealer in this type of arrangement arranges the credit from the financier.

Structure of the transaction

A consumer credit arrangement can be structured in three ways. Hire-purchase:A method of buying goods through making instalment payments over time. The term hire purchase originated in the U.K similar to what are called "rent-to-own" arrangements in the United States. Under a hire purchase contract, the buyer is leasing the goods and does not obtain ownership until the full amount of the contract is paid. Can buy goods on full payment

Conditional sale: The ownership is not transferred to the customer until the total purchase price including the credit charge is priced. The consumer cannot terminate the agreement before the payment of the full price. Credit sale: The ownership is transferred to the customer on the payment of the first installment. He cannot cancel the agreement.

Mode of payment
The consumer credit arrangements fall into two groups:

Down payment schemes Deposit-linked schemes

Repayment period and rate of interest: The repayment period ranges between 12-60 monthly installments. The rate of interest is normally expressed at a flat rate. Security: It is generally in the form of a first charge on the asset. The consumer cannot sell/pledge/hypothecate the asset.


Hire purchase is a method of selling goods. Creditor and Hirer Singer Manufacturing Company started the hire purchase agreement. The organized sector and the unorganized sector are engaged in the hire purchase business


Each installment is treated as hire charges

The buyer takes possession of goods immediately and agrees to pay the total price in installments. Ownership of goods passes from the seller to the buyer on the payment of the installment The buyer makes any default in the payment of any installment the seller has the right to repossess the goods the from the buyer and forfeit the amount

The hirer has the right to terminate the agreement any time before the property passes He has the option to return the goods in which case he need not pay installments falling due thereafter.

The Hire Purchase Act, 1972 defines a hire purchase agreement as, an agreement under which goods are let on hire and under which the hirer has an option to purchase them in accordance with the terms of agreement under which:

Specified period for payment Each installment is treated as hire charges Ownership of the goods transferred only after the payment of installment. Possession is delivered to the purchaser at the time of entering into a contract. Right to repossess the goods and forfeit amount already received treating it as hire charges. Right to terminate the agreement.


Creditor and hirer Sufficient description about the goods Price of goods Date of commencement of agreement No: of installment, amount, and due date


In hire purchase until the last payment the ownership remains with the seller.

In credit sale the title in the property is transferred to the purchase simultaneously.

Hire purchase and installment sale

In case of hire purchase the ownership of goods is delivered only after the last payment and the right to repossess the goods.
In case of installment system the ownership of the goods and the possession of the goods transferred immediately and the right of disposing of the goods.


The subsidiary of commercial banks lend to the dealer or to finance intermediary who has already financed articles sold by the dealer to the hirer under a hire-purchase contract. Procedures are: Customer Purpose

Amount Period Repayment Security Monitoring and Control

Housing Finance System

The Central Government has set up Housing and Urban Development Corporation (HUDCO) to finance and undertake housing and urban development programmers, development of land for satellite towns, besides setting up of a building materials industries.

Objectives to provide long-term finance for construction of houses for residential purpose and urban development programmers To finance or undertake the setting-up of new satellite towns. To finance or undertake the setting-up of the building materials industries.


The principle mandate of the HUDCO was to ameliorate the housing conditions of the low income group (LIG) and economically weaker sections (EWS).

The HUDCO was established with an equity base of Rs2 crores. They extends assistance, benefiting masses in urban and rural areas, under a broad spectrum of programmes. They are Housing :- Rural housing, cooperative housing, urban employment through housing and shelter up gradation

Infrastructure Land acquisition, basic sanitation and environmental improvement of slums. Consultancy Services Building centers for technology transfer, building materials industries and building technology.

Training Training in human settlements and technical assistance to all borrowing agencies. The LIC and GIC support housing activity both directly or indirectly.

Commercial banks According to RBI guidelines, scheduled commercial banks are required to allocate 1.5% of their incremental deposits for disbursing as housing finance every year. Cooperative Banks Consists of state cooperative banks, District Central Cooperative banks ,finance by individuals, cooperative group housing societies Specialized Housing Finance Institutions - Caters only to the need of housing sector - -e.g HDFC ltd

Internet banking

Internet banking(on line banking) allows customers to conduct financial transactions on a secure website operated by their retail or virtual bank, credit union or building society. Internet banking involves use of Internet for delivery of banking products & services Internet banking is increasingly becoming a "need to have" than a "nice to have" service.

Internet banking is one more channel, one more access point like an automated teller machine or a call centre from where a customer can transact business for which earlier he used to go to a bank branch. Internet is the cheapest of all banking channels and helps bank to gain substantially in terms of transaction costs.

A successful Internet banking solution offers Exceptional rates on savings,CDs Checking with no monthly fee, free bill payment and rebate on ATM surcharges Credit cards with low rates Easy online applications for all accounts, including personal loans and mortgages 24 hour account access Quality customer services with personal

The six primary drivers of Internet banking includes Improve customer access Facilitate the offering of more services Increase customer loyalty Attract new customers Provide services offered by competitors Reduce customer attrition

Main concerns in internet banking

Security is the most important issue of online banking. . There is a dual requirement to protect customers' privacy and protect against fraud A multi-layered security architecture comprising firewalls, filtering routers, encryption and digital certification ensures that your account information is protected from unauthorized access:

Firewalls and filtering routers ensure that only the legitimate Internet users are allowed to access the system. Encryption techniques used by the bank (including the sophisticated public key encryption) would ensure that privacy of data flowing between the browser and the Infinity system is protected. Digital certification procedures provide the assurance that the data you receive is from the Infinity system

Virtual banking
A virtual bank is a bank with a very small or nonexistent branch network . By eliminating the costs associated with retail banking, particularly bank branches, virtual banks may offer higher interest rates and lower service charges on their savings accounts than their competitors.

It offers its financial services by:

Telephone banking Online banking Automated teller machines Mail banking Mobile banking

List of virtual banks

Bank of Internet (United States) Citi Direct, a division of Citibank (United States) Ebank (United States) HSBC Direct, a division of HSBC Bank USA (United States) ING Direct, part of ING Group (worldwide

Telephone banking
Telephone banking is a service provided by a financial institution which allows its customers to perform transactions over the telephone

Automated teller machine (ATM

An automated teller machine (ATM) is a computerized telecommunications device that provides the customers of a financial institution with access to financial transactions in a public space without the need for a human clerk or bank teller

Mail banking
Mail banking is a service provided by a financial institution which allows its customers to deposit cheques into their account by mail. It is primarily used by virtual banks (as they may not offer branches or ATMs that accept deposits) and by customers who live too far from a branch. Typically, the institution that advertises such a service will provide its own self-addressed stamped envelopes as a courtesy

Mobile banking
Mobile Banking refers to provision and availment of banking- and financial services with the help of mobile telecommunication devices. The scope of offered services may include facilities to conduct bank and stock market transactions, to administer accounts and to access customised information."

Mobile Banking Services

Account Information Payments, Deposits, Withdrawals, and Transfers Investments Support Contented Services

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